How does Hyperinflation Occur?

Chapter 3

There are many different variables that can occur when it comes to triggering hyperinflation. It is impossible to cover all of them so we will cover those that have the most significant impact on the economy of the USA.

When the general public decides to retain all of their wealth in forms of non monetary assets it can create problems with cash flow. There are many people that decide to invest in foreign currency such as with For Ex. This can all influence the amount of purchasing power that the USA has as a whole.

In many instances the general public is looking at money in terms of foreign currency. They may get price quotes in other currencies and that too can be a problem with very high levels of inflation occurring.

Today’s society in the USA often has a buy it now and pay for it later attitude. Yet the balance of credit purchases has to be very closely evaluated. The prices then have to be increased in order to help cover the losses of those that aren’t able to repay the credit that was extended to them.

There is a price index and it can be very complex overall. They can influence many elements of the economy including prices of goods and services, wages, and interest rates. It is a good idea to become familiar with that. Too many people don’t realize the influences that these changes have on the economic status.

Any time you have a substantial amount of goods being produced but not enough of a market to purchase then you will have problems with hyperinflation. There has to be a balance of supply and demand for the economy to be healthy.

When you look at paper money, it really is only as valuable as the stability of the economy. When that value isn’t there it can be very difficult for it to be trusted and continue to do what it was intended for.

When hyperinflation is present, the purchasing power of various entities including private and public investors and banks is diminished. It the USA the biggest problem has to do with the fact that the Federal government is heavily in debt.

The scenario is that if they continue to create large sums of paper money to circulate then they will cause hyperinflation. Those paper bills won’t be worth the ink they are printed with to express the sentiments of many experts in the field of economics.